This means investors are expecting positive future

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increases the price to earning ratio of the company. This means investors are expecting positive future performance from the company and they are willing to pay more for the share of the company with respect to the value of the firm. Management’s perspective Efficiency ratio of a company can tell whether a company is profitable or not, hence, this ratio is closely related to the success of management. In fact, efficiency ratio of Bonia reflects the company’s weak management team. Bonia’s inventory turnover decreases from 2014 to 2015 yet it is still maintained at nearly 2 times per year. The reason to this may be there is a problem with the company’s marketing strategy which result in no improvement of sales level. The company is buying excess inventory before realizing that it is hard to sell them off and this creates resources wastage. The increase of debtors from 2014 to 2015 is good sign because it means the company is making more credit sales. However, at the same time the decrease of debtor ratio shows that the company’s efficiency in debt collection is getting worse. Bonia used approximately 20 days more in average to collect its credit sales. Poor management of credit sales by Bonia is unfavorable because this means it will take more time for inventory to be converted into cash. Combined Analysis Current ratio of Padini decreases due to percentage of increase in current liability is greater than the percentage of increase in total current asset. However, when the two company is compared, Padini is still leading in terms of liquidity. Padini manage to control its inventory at a desire level which result in its quick ratio to increase greater than that of Bonia. The increase in quick ratio indicates that Padini current asset is more liquid as compared to the previous year. This also means Padini is capable of making more credit purchases subsequently increases the potential of the company to generate greater revenue. In contrast, inventory of Bonia increases over the year probably owing to the decrease of competitiveness in the industry, hence cash is being tied down in stocks, causing its liquidity to decrease. Changes in amount of leverage of Padini is opposing that of Bonia. This can be seen clearly through debt and debt to equity ratio, where they have increased for Padini but decreased for Bonia from 2014 to 2015. The difference in the trends is due to both companies are practicing 17
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a different fund raising policy. Bonia tends to raise fund more by issuing of shares rather than borrowing during the year 2015 while Padini is practicing the opposite method. Refering to current condition, Bonia is taking more financial risk than Padini because both debt and debt to equity ratio of bonia is relatively higher. The result also indicates that Bonia has a relatively higher willingness of taking risk and relying on debt in generating profit. The justification of a company with high risk but high potential return to be good or bad varies among investors depending on the perception of the investors. In terms of times interest
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  • Summer '17
  • ms lau
  • Financial Ratio, Generally Accepted Accounting Principles, Padini Holdings Berhad, Padini, Bonia Corporation Berhad

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